Policy
wording enabled a Christchurch building owner with an underinsured property recover
more than the amount nominally insured because a reset clause in the policy
meant the amount insured was reset after each of a successive series of
earthquakes. While multiple payouts
resulted, the owner was not entitled to more than the replacement cost of the
building.
IAG Insurance disputed
the amount payable to Ridgecrest NZ Ltd following damage to Ridgecrest’s
Gloucester Street building during a series of four earthquakes in 2010 and
2011. IAG’s liability under the policy
was stated as a maximum of $1.984 million in respect of each single
“happening”. This figure was less than
the replacement cost of the building.
During the period of
insurance, the Gloucester Street building was partially damaged in a series of
earthquakes before being written off as a total loss following severe quakes in
February and June 2011. Taking a lead
from marine insurance, IAG argued the earlier damage had “merged” into the
total loss claim and it was liable to pay only the maximum sum fixed under the
policy at $1.984 million. The Supreme
Court disagreed. IAG’s policy wording
entitled Ridgecrest to recover separately for losses arising from each separate
earthquake. A marine insurance “merger”
argument could not apply when the policy reset after each of the separate
events. Ridgecrest could recover damage
caused by each of the three initial earthquakes (up to the policy limit of
$1.984 million for each quake) as well as $1.984 million for the total loss
following the June 2011 quake.
But, as a general
principle of insurance law, any insured cannot be placed in a better position than
existed before the loss. This meant
Ridgecrest could recover more than the nominal sum insured of $1.984 million
but could not receive compensation in excess of the replacement value of the
building. The court was not asked to
rule on the amount actually payable.
Ridgecrest
v. IAG – Supreme Court (27.08.14)
14.036